Deal reached on tax breaks for Pa. refinery

Jun. 29, 2012

Written by

Marc Levy

The Associated Press

HARRISBURG, Pa.-- Top state Republican lawmakers have reached an agreement on a package of tax breaks that Gov. Tom Corbett has sought in hopes of encouraging the construction of a multibillion-dollar petrochemical refinery and an associated chemical manufacturing industry in Pennsylvania, lawmakers and legislative aides said Thursday.

Under the agreement, there would be no limit on the tax break -- Corbett had proposed capping it at $66 million a year, or almost $1.7 billion total. But it would keep the Republican governor's proposal for a tax credit of a nickel per gallon of ethane used by a qualifying refinery owner.

The credit would last for 25 years, beginning in 2017, as Corbett had initially proposed. At $1.7 billion, lawmakers say it would be Pennsylvania's largest financial incentive package ever, but the value of the tax credit could actually exceed $66 million a year, or $1.7 billion total.

"At some point in time, it could be" above that, said Sen. Elder Vogel, R-Lawrence, whose district could become home to the new industry. "It won't be to start with."

The $66 million limit was an artificial number, Vogel said. But the nickel per gallon figure is more important, because Corbett administration officials say it would be proportional to the industry's activity and the resulting collections of new taxes on things like sales and income.

The goal and expectation is to send the legislation to Corbett to sign before the fiscal year ends Saturday night and the Legislature heads home for its traditional two-month summer break from Harrisburg.

A draft of the legislation was not available to the public Thursday. The provisions were to be amended into a broader bill on Friday that makes a number of changes to tax laws.

Major business groups and private-sector labor unions support the idea, but some Republicans say the tax breaks are unfair to other business sectors. Some Democrats are criticizing the tax breaks as corporate welfare at a time when Corbett is balancing a second straight budget with cuts in aid to services for the poor.

To fight concerns about the appearance of a giveaway to the industry, lawmakers will include requirements that a qualifying refinery owner must invest $1 billion in a project with at least 2,500 construction jobs.

Corbett's pursuit of the tax credit was spurred by a tentative commitment from a subsidiary of Netherlands-based oil and gas giant Royal Dutch Shell PLC to build a petrochemical refinery at a site in southwestern Pennsylvania's Beaver County.

Shell's so-called ethane cracker would convert natural gas liquids from the bountiful Marcellus Shale formation to ethylene, which chemical manufacturers can then use to produce chemicals that go into everything from plastics to tires to antifreeze.

Shell may have little need for the tax credit because the site of its prospective plant, in Monaca, is located in a tax-free zone the Legislature created for it earlier this year.

But the legislation would allow Shell to sell the tax credit to natural gas drillers that produce the ethane or chemical manufacturers that use the ethylene. That way, Shell would deal with one of its biggest concerns -- that ethane producers have an incentive to sell to its refinery, rather than pipelining it to other refineries on the Gulf Cost. It also would have help encouraging a chemical manufacturing industry eager to buy the ethylene to cluster around its refinery.